The U.S. House of Representatives passed a vote this week to permanently ban any taxation of Internet access, unleashing a litany of controversial issues around technological innovation and state tax revenue.
First some background: With this vote for the Permanent Internet Tax Freedom Act, the House has agreed to permanently prohibit any state or local taxes on Internet access. Not to be confused with state taxation of online shopping purchases, which is another issue that’s been debated for some time, this bill focuses squarely on the ability of a state to impose a tax on Internet connections. A temporary ban, which has been in place since 1998, is set to expire in November of this year. The bill is reported to have bipartisan support in the Senate.
On the surface, this all looks pretty benign. With the exception of seven states that were grandfathered out of the temporary Internet tax ban, notably Texas, Wisconsin and Ohio, states have never taxed Internet access, so a permanent ban on something they never taxed anyway should come as no great loss. Peel back the layers of this issue a bit further, though, and a very complicated set of issues emerge that factor into everything from technological innovation to generational trends in communication to persistent shortfalls in state government coffers.
To truly understand the potential implications of a permanent ban on Internet access taxes, you have to look at the growth of Internet access in this country over the last several years. According to the Leichtman Research Group, a media and entertainment research firm, there were a total of 85.5 million broadband Internet subscriptions in the U.S. through the first quarter of 2014. Approximately 1.2 million of these were added in Q1 of this year alone. On top of this, the trade group CTIA-The Wireless Association, reports that mobile Internet use in the U.S. more than doubled to 3.2 trillion megabytes from 2012 to 2013.
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